By Elaine Moore – Financial Times
Renowned American investor Jim Rogers has attracted global attention with his prediction that gold prices will fall to $900 per ounce. His words carry weight not just because of his years in the industry, but because two years ago the retired hedge fund manager, who co-founded the Quantum Fund with George Soros, correctly said that gold – then hitting peak prices – would drop to $1,200 per ounce.
Gold, he repeatedly warns, is not a mystical commodity and its real bottom will not be reached until those investors who think it cannot fall have all left the market.
Mr Rogers is on a mission to convince the investment world to look seriously at agriculture. He explains to FT Money why he thinks it will be a source of profit for years to come.
Why do you think gold prices are going to keep falling?
Gold has gone up 12 years in a row, which is terribly unusual for any asset, so it would be an anomaly if there was not a correction.
I am terrible at market timing but I expect gold to go down 50 per cent from its peak, which would take it to about $900. I’m not selling gold at the moment but if it falls or if it gets down there, then I hope I will be smart enough to will buy more.
Why does gold attract so much attention?
I can’t tell you why, but I always have the same experience. When I speak at investment events there is always someone asking about gold. I’d rather talk about agriculture.
What do you want to say about agriculture?
I think there is more money to be made in agriculture. I don’t think we’ve had the final bottom in gold but we must be nearing it in sugar. Sugar is down 75 per cent from its all-time high – there’s not much in the world that’s down 75 per cent.
I think that farming is going to become one of the most exciting professions in the next 20 years. The average age of a farmer in the US is 58, in Korea it’s 65. It is an old profession and the people in it are dying out or retiring. In the US, more people study public relations than study agriculture.
The world is facing a serious demographic and production problem. If something doesn’t change then we won’t have food at any price. Prices will have to go up a lot to attract labour and the Food and Agriculture Organization has tried to get people to see this crisis. They see what I see. What more do you need to know?
Why isn’t there more interest in this sector?
We’ve had long cycles where the financial sector was in charge, followed by times when the people who make things were in charge. We’re at a mid-point now.
When I was at college [Mr Rogers was born in 1942] people used to talk about the City and Wall Street as backwaters. Now the kids at Oxford all want to start hedge funds. But the fundamentals have changed so much. There is so much competition in finance and banking in the rest of the world, we have gigantic leverage in the industry and now every government is coming down hard against financial types. I think finance is going to be a terrible place to be for the next 10, 20, 30 years.
You set up the RICI [Rogers International Commodity Index] in the late 1990s, how are you investing in agriculture?
I mainly buy agricultural products – farms. I buy publicly traded farms in Australia and Indonesia and Africa. But you can invest in tractors and fertilisers and seeds – there are lots of ways into this.
What else are you currently investing in?
Well, apart from agriculture I’m looking at the US dollar because there will be more currency turmoil in the future and I think a lot of people are going to flee to the US dollar as a haven. The Chinese currency will also continue to be strong, and sugar, which I’ve mentioned. I’m also buying shares in airlines and I’m looking at Russia, which I’ve been pessimistic about since 1966, but which I’m now changing my views on.
What are your views on passive investment?
There are plenty of studies that show that index investing outperforms 80 per cent of active managers, so passive investing is the best way for most investors. If you are a good stock picker then, sure, do that, but the evidence is so strong that basically most people should use passive investments.
Feeding the nine billion
The world’s population is expected to grow to nearly nine billion by 2040, and those extra two billion people are going to need quantities of food which are not yet being produced.
Add in bad weather and the damage it has done to existing crops, with the increased demand for biofuels, and the case for investment in soft commodities such as wheat, sugar and livestock might seem simple.
Some of the funds that invest in the area have had impressive returns too. The Sarasin AgriSar fund, for example, has risen by 17 per cent over the past year. The fund invests in a range of stocks, from Dairy Farm, the Asian supermarket chain, to agribusiness groups such as Syngenta.
Eclectica’s Agriculture fund, which invests in grain and fertiliser, has returned close to 15 per cent in the past 12 months, but its performance has been far more volatile.
As well as specialist investment funds from the likes of Baring Asset Management, JPMorgan and Schroders there are exchange traded commodities that mimic the performance of agricultural commodity futures, and can be traded on stock markets. ETF Securities runs a sterling-hedged agriculture ETC with a management fee of 0.49 per cent – it invests in a basket of nine commodities – and a whole range of single-commodity ETCs.
Agriculture can be a volatile sector and the weather – which private investors cannot predict – can have a huge effect on short-term price movements. This is not a sector that provides an income either, which is why advisers usually recommend that soft commodities only make up a small part of an investor’s portfolio.
There are also ethical considerations. Companies say that investment will improve outcomes in the long run, raising production and lowering food prices. But investing in commodities can push up their immediate price, and higher food prices tend to have a disproportionately huge impact on the world’s poorest people.